Monday, September 27, 2010

Life beyond 20,000: Invest carefully:

With the equity markets retesting historic highs, you now need to frame your investment strategy carefully. After all, it’s better to be safe than sorry, as the adage goes.

Though India is in an economic sweet-spot presently, the world economy and the financial system face considerable imbalances and uncertainties. Any adverse global development could cause this gush of liquidity, primarily responsible for the swift run-up in domestic equities, to reverse direction pretty quickly leave India.

The way forward

Here are the possible courses of action available to you while framing your investment strategy at this point of time.

1. Invest: Indian equities still offer attractive wealth creation opportunities over the long term. You may hence consider investing into this market if:
Your investment horizon is at least five years and
Your allocation to equity is less than what you had desired or planned and
You are ready to stomach the interim gyrations of the market

Mr. Vikramaaditya, Chief Executive Officer, HSBC Asset Management (India) Pvt. Ltd., shares, “There may be volatility in the short term but the long term growth story is intact. The key to any investment strategy would be identifying the right investment opportunities.’

You may phase out your investments by using Systematic Investment Plan (SIP) for deploying fresh inflows into predominantly large cap funds. If you have a lump sum, you may consider a Systematic Transfer Plan (STP) from short term debt fund to equity fund, gradually.

Tax saving ELSS investments may be phased out over the remaining six months of this financial year. You may consider arbitrage funds for shorter terms as higher market volatility is conducive for such funds.

2. Rebalance: If the sharp run-up of the recent past has skewed your asset allocation towards equity, it’s time to rebalance. You may consider pruning your equity exposure progressively, using STPs to divert flows into a debt fund. This is also the time to rebalance your exposure to mid and small cap funds in favour of large cap ones. Saurabh Nanavati, Chief Executive Officer, Religare Mutual Fund says, “Get your financial planning done with a certified financial planner/adviser and stick to the asset allocation”.

3. Exit: If you need your money within the next two or three years, you should aim to preserve the gains that you’ve already made. You would do well to plan your exit in a phased manner using Systematic Withdrawal Plan (SWP), to minimise the risk of bad timing.

End Note

As Sandesh Kirkire, CEO, Kotak Mutual Fund says, “Investors must remain true to their investment objective, and the consequent investment design flowing from it. Therefore, any event must not be the determining factor in changing your long sought out strategy”. 


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